A Labour minister has just tried to explain on LBC why U.K. society requires young people who attend uni to pay a graduate tax

[EvangelicalAboutButteredToast]

And I’m confused. He was trying to say it was a student loan and then accepted it was a graduate tax and that society deemed that the right thing because they were more likely to out earn those who didn’t attend uni.

I thought that was what income tax was for alongside all the other taxes. Are uni courses subsidised by the government. Is it that?

@Alexandra2001 Most professional jobs require a degree. The NHs has plenty of people wanting to train. Yes, you help others train. Many professionals are mentors to others in engineering, law etc. Why would the nhs be different? Personally I’d like a smaller nhs, then we could lower tax.

Grads are, overall, better off by having their degree. It’s obviously been devalued by widespread participation. However we have had loans for decades and plenty still want to go to university. It’s not put anyone off. Stats don’t lie. If dc are risk averse, try for an apprenticeship.

I 've just told you there aren't enough staff to train students in a mentoring role as it is, FT, the NHS would colapse.

Student loan repayments are going up and for longer, maybe read up on why many Uni's are facing financial ruin?

Ok, lets have the SLC regulated by the FCA, as all other loans are.

Wonder why they are not?

The system is scam and would never be allowed under FCA rules, thats why the system is deliberately not under the FCA.

Do please explain what would not be allowed under FCA rules. But the reason it isn't as that this is a government scheme, not because it is some kind of scam. You may not like the scheme, but it is clearly not a scam.

The person who leaves school to work in retail benefits from living in a society where there are lawyers and doctors and engineers and architects and social scientists and teachers and every other kind of highly educated person. But if they are low paid their contribution to that under an income based universal system would be low. Anyone with a high salary ultimately got to that salary due to reasons that wouldn't have happened without lots of other people getting educated, even if they themselves didn't. An income-based tax for everyone regardless of whether they went to university would mean that everyone who is reaping rich rewards from society as a whole contributes more and those who aren't getting those rewards contribute less.

@Alexandra2001 The students thinking of going now are on the 40 years scheme. Have applicants dropped? Why do you think the unis are in trouble? Nothing to do with overreaching their remit? Expanding too much? Building too much? Not reacting to circumstances quickly enough? Not being well run? They are not all in trouble. It’s easy to loom that up.

The NHs is poorly run. It needs reform. Staff have always trained other staff. Hardly new info. Maybe better management would sort it out, We can dream.

Actually it gets back far, far more because without any graduates its tax revenue would totally collapse and state services become completely unsustainable fiscally and practically.

I agree completely. Young people in the UK have been sold down the river and then victim blamed for situations not of their own making. If this country wants to have any hope of future prosperity or rising living standards then there needs to be a large redistribution of public spending (~50% of which goes on over 65s despite them being 15% of the population and having paid nowhere near enough tax as a cohort over their lives to fund this) from the old to the young.

It was obvious this was going to blow up politically. The contract is unfair (Plan 2). RPI plus 3 per cent is far too much.
Cohort until 2023 includes the students who went during Covid and did not get a full uni experience, at all. And then huge inflation has left them with huge debt at those levels. The Government also have the power to freeze the repayment threshold on salaries (unfair contract term vs baked in inflationary increase in interest).

The Government is only funding 22 billion a year on student loans. Vs 138 billion on state pensions (just by comparison). They have a “ballooning debt” on the former, simply because they treat it as debt! If it came out of tax revenue it would not be ballooning! Imagine if they treated the state pension as a loan on future tax payers plus RPI of 3 per cent. Or as a loan to pensioners who pay back as cohort out of their own assets when they die.

Has anyone got a tracker mortgage plus 3 per cent? Leading question.

If you think the scheme is free fair and above board, why isn't under FCA rules? being a Govt scheme, shouldn't make any difference at all.

For starters, an FCA regulated company wouldn't demand that parental income is the decider on amounts loaned, wouldn't lend to a minor, would have a clear complaints process, to an independent Ombudsman, no option to have a fixed rates, the student is forced to sign up to variable (as per voluntary agreements) also, perhaps most importantly, there is no competition, the student has no choice where they can borrow the money from, subject to family wealth.

Perhaps you can explain why RPI plus 3% is used? not CPI and given the very high interest rates, why is the SLC classed as "not for profit?" because around 50% of the loans wont be repaid, so those who do earn more, subsidise the less well off, never made clear at the time of taking out the loan....

Plan 2 students took out the loans against the backdrop of post 2008 financial crisis and a very low interest rate environment.
None of them could have foreseen the combination of Brexit (thanks Tories), Covid and the Ukraine war. Placing the risk of inflation (plus 3%) due to those factors on young people is completely disproportionate. These huge interest rate rises were grossly unfair and should be recalculated in a far fairer manner.

Also, that loan system was due to the Tories and their commissioned reviews.
At the end of the day, the Tories framed everything as “progressive” taxation. They are the engineers of destroying the educated middle class vote because they know that is where the Labour voter base now lies. They are the ones who prioritised the grey vote. And now Labour are stuck and need to wake up because they are haemorrhaging educated voters and their DC.

The right wing of the Tories just want the proper rich and the enslaved poor on benefits and the grey vote. None of this is economically productive against a backdrop of young workers being the key to future success. We should not be incentivising young people to leave for other countries because they cannot afford to pay their student loan, buy a house nor have children. It is complete madness.

Also worth remembering that kids of the elite won’t be taking out student loans. They know better. It is the domain of the trapped middle paying for everyone else, again.

100% @Araminta1003

Unless Labour wake up, they'll lose a great deal of votes over this, the new 16/17yo voters, wont forgive them.

For most plans for a first degree, interest is fixed at 3.2%. Plan 2 interest rates depend on the student's earnings and can get up to 6.2%. The average SVR for a mortgage is around 7.25%.

Comparing first time buyer rates with a first time student loan, the average mortgage rate is now around 3 to 4%, fixed, with many options to shop around etc etc its a fixed term mortgage, the lender cannot just up the term or change rates during this period and the borrower has a plus you ve an vastly appreciating asset
Not so with student loans.

As i said, there is a reason the Govt chose not to have the SLC under the FCA.

It is not under FCA rules because it is, in essence, a graduate tax with a lifetime limit on the amount you pay. Despite being called a loan, it is not a loan in any real sense. A real loan would appear on the student's credit history, the repayments would not depend on earnings and the loan would not be written off after a fixed period.

No minor receives a student loan. A student is 18 when they start university. They may be a minor when they apply (although most are not), but they are definitely not minors when they start to receive the loan.

There is a clear complaints process for student loans. Ultimately, students can complain to the Financial Ombudsman for mortgage-style loans, the Parliamentary and Health Service Ombudsman for other loans (or a different ombudsman if the student is in Scotland, Wales or Northern Ireland).

FCA lenders do not have to offer fixed rates on all loans.

There is nothing to stop a student taking a loan from a commercial lender to cover their tuition and maintenance. However, as the student has no income, a commercial lender will require a guarantee from the parents, the amount lent will depend on parental income (contrary to what you say), they will require repayment regardless of the student's earnings, the loan will not be written off until it is repaid, the interest rate may be fixed but it will be much higher than the government charges and, overall, the terms will be much worse than those on offer from SLC. But, given the amounts involved, most lenders will simply refuse to lend that much to a student. That is why there is no competition.

RPI is used because this is a tax and the government wants to reduce public subsidies for higher education.

The SLC is clearly not for profit, so I'm not clear what point you are making. It loses around £300M per year.

Yes, a lot of loans will never be paid off but, given that the government has to pump billions of pounds into the scheme every year, I wouldn't say that means higher earners are subsidising the less well off. It means the government is subsidising the less well off.

Those are, of course, short term deals. Unless you switch your mortgage provider every few years, your interest rate will be much more than that.

Yes, there is a reason the government don't have the SLC under the FCA, but it isn't because it is some kind of scam as you seem to think. It is because it is a tax.

My 17 year old was asking whether any private sector employers who want the best graduates will start offering to repay student loans for them and put them on a retainer for a number of years. I was not sure how to answer it. Any ideas?

22 billion on student loans is peanuts compared to the NHS and state pension budget, for which they always seem to find the money.
Right now the graduate employment market is terrible and kids should go to uni to stay doing something. Having the press scare them off left right and centre is further madness. The Government should provide some sweeteners and reassurances for what is one of our key remaining sectors. In parallel, I would like to see training for actual trades formalised as well. It need not be one or the other. They have the figures for NEETS and mental health issues amongst the young. It is a massive problem which needs addressing and is more urgent than anything else.

@Alexandra2001

i don’t disagree with either of your points - people who came after me were trapped into much less favourable arrangements than my £4k/year and the government (successive governments) have not given enough thought to the question of which degrees should be worth subsidising.

My point was simply to reply to a PP who suggested that those who earn high salaries after graduating should be taxed higher for the rest of their earning lives - seems to diminish the whole point of applying yourself in a course that leads to employment (as your child has done) in favour of doing whatever course you decide is most “fun”. This is not the basis of a sensible policy regarding who should go to university and how much should be subsidised. I have had the value of my degree and it would be fine for me to pay a market rate for it, and it would be fine for your child to get a degree for less for working in the NHS. But if we could avoid a situation in which anyone who picks a sensible vocational degree is subsidising multiple gender studies courses for the rest of their working lives, that would surely be sensible, otherwise good graduates will start purchasing their degrees abroad where they can get better value.

It's an interesting idea and I do think employers might start using Student Loan related "Golden Hello" offers but it wouldn't be to pay off the whole thing. What I might do if I were wanting to attract graduates is to say that any graduate recruit recieving top score on their quarterly performance review for the 2nd and subsequent consecutive quarter would get their SL payments for the current quarter refunded, and the current interest on their outstanding Student Loan paid, so that those who consistently perform well will have a better chance of getting their debt paid off eventually and have the same take-home pay as those who had thei fees paid fromfamily wealth. And it would have the added happiness that I wouldn't be giving extra handouts to wealthy kids who don't need it.

The biggest issue is that it takes most people a long time to get to the salary level at which their 9% contribution actually exceed the interest being added, and with each year that passes on a salary where that 9% is lower than the interest, the debt rises so that breakthrough point gets further away. For a young person who has a good chance of eventually being on a top-20% salary, keeping that compound-interest trap under control in the early years is what would make the biggest difference.

What is the alternative?

Free uni funded by all taxpayers? Too expensive with the high % of students.

Keep the existing loan system, govt backed / nothing paid back during studies but move to ‘standard loans’ after gradution, ie similar rates than a mortgage for ex but not dependent on income?

Free uni for public functions (NHS, etc), fees for other degrees (with loans as described above)? And if someone qualifies for the free fees and then decide not to work for the public sector they would be liable to repay the fees with a loan.

I would vote for the last option.

If the government really believed that a degree significantly increased earning power then HMRC would benefit from the tax take on the higher incomes anyway. At one point the number bandied around for the average increase in life time earnings was £300k. If we assume that most of that is at higher rate tax then there's £120k to the treasury; if only half is at higher rate and half at basic rate that's still £90k to the treasury, which more than covers the costs of most degrees.

Now, you do have to take into account the time value of money and discount that back, and I can't be bothered to do that, but it still feels that a degree is net positive to HMRC even without a penal level graduate tax on top...

I don't think you can run a two tier approach of free education for those that work for a nationalised or government run organisation and those who don't...it's fundamentally unfair

£300k is far too much. The average is a little over £100k. Given that is spread over the graduate's entire working live, that is less than £2.5k per year. As average earnings are a little under £40k and 40% tax doesn't kick in until over £50k, it is likely to be taxed at 20% giving HMRC £20k additional tax. The average student loan is around £53k, so the additional tax paid by an average graduate doesn't get anywhere near covering their loan. It looks even worse if you take into account the fact that the government would have to find the £53k up front, but the student's additional tax will be spread over 40+ years.

In my view, a large part of the problem is the expansion of universities. It used to be the case that less than 10% of young people under 25 went to university (i.e. school leavers and those that started university within a few years of leaving school). That has risen to around 50%. As a result, many jobs that used to be available to any school leaver now require a degree, and many degrees don't lead to high paid careers. As a result, a much lower proportion of graduates end up in high paying jobs, so the increase in earnings from having a degree has gone down.

The freezing of the repayment threshold is another example of a "Scam loan"

Student loans are not a tax, point me to where it says TAX in the SLC paper work a young person signs?

Such sharp practice would not be allowed in the consumer loan sector.

Interest rates? the normal loans/mortgage sector is highly competitive, how many realistic alternatives to the SLC is there? answer - None.